Oil prices, yield curve cut stocks' early gains

By Ellen Simon
Associated Press

NEW YORK » Rising oil prices and the return of a bond market anomaly cut into Wall Street's early gains yesterday, leaving stocks with only a modest advance.

The market pulled back in response to a jump in crude oil prices. Oil gained after Iran's oil minister was reported to have said the Organization of Petroleum Exporting Countries should consider lowering its output by 1 million barrels a day at its Jan. 31 meeting. A barrel of light crude settled at $59.82, up $1.66, in trading on the New York Mercantile Exchange.

Investors also worried about the bond market. Stocks fell Tuesday after yields on long-term bonds dropped below those on short-term bonds, a condition called an inverted yield curve that often precedes economic slowdowns. The yield curve last inverted in 2000.

Still, "the yield curve has people on edge," said Peter Cardillo, chief strategist, senior vice president and market analyst at S.W. Bach & Co. "It's certainly keeping the market in a tight trading range."

The Dow Jones industrial average rose 18.49, or 0.17 percent, to 10,796.26.

Bonds fell, with the yield on the 10-year Treasury note rising to 4.37 percent from 4.34 percent late Tuesday.

Trading on Wall Street was slow. "The market is defined more by a lack of action than anything else," said Brian Bush, director of equity research, Stephens Inc.

Stocks received an early boost from the Conference Board's report that consumer confidence surged in December. The reading, which improved because of declining gasoline prices and better job opportunities, is nearing its August levels, before Hurricane Katrina.

Other economic indicators were mixed. The Mortgage Bankers Association's index of applications to buy a home or refinance an existing mortgage declined 6.8 percent, hitting its lowest level since June 2002 while a weekly index of retail sales showed strength in the week leading up to Christmas, according to UBS.

"The consumer numbers look fairly strong, although at least some of that strength is likely to fade in coming months if housing continues to weaken," said Maury Harris, an economist for UBS. "The mortgage applications data suggest home prices are already weakening."